The bank will pay $16.65 billion for selling securities backed by risky loans before the financial crisis.

The New York State Attorney General’s office announced this morning that Bank of America had agreed to a $16.65 billion settlement with regulators over the sale of residential mortgage-backed securities prior to the 2008 financial crisis. The settlement was reached with a group of both federal and state regulators and requires Bank of America to pay $9.65 billion in penalties and $7 billion to affected homeowners and communities.

As part of the settlement, Bank of America agreed that it had distorted information to the public and investors regarding the packaging and sale of certain mortgage-backed securities, according to the statement by the New York State Attorney General’s office. The bank acknowledged that it sold securities backed by mortgages that it knew were unsound.

It also admitted to misrepresenting loans that it had originated and underwritten to gain FHA insurance from the US Department of Housing and Urban Development for loans that were ineligible for the insurance. FHA-insured mortgages are designed to help lower-income families achieve homeownership and have not been included in previous mortgage settlements with financial institutions, preventing borrowers of such loans from gaining relief from those settlements.

The settlement includes charges and lawsuits involving Countrywide Financial and Merrill Lynch and their own dealings in mortgage-backed securities. Bank of America acquired both of those institutions in the midst of the financial crisis, when it felt pressured by regulators to do so to help prevent the two from failing, which would likely have worsened the crisis.

According to an agreed-upon statement of facts resulting from the settlement, Merrill Lynch sold large numbers of loans for securitization and investors that were found to be defective by third-party due diligence. In one pool it was found that more than 50% of the loans were missing key documents, had not been originated in compliance, or were not in compliance with existing underwriting guidelines. One report by one of Merrill Lynch’s due diligence vendors found that more than 4,000 loans that were part of loan pool samples were not in compliance but were still sold for securitization.

Today’s settlement brings Bank of America’s total bill for regulatory fines and settlements since the financial crisis to $70 billion, according to The New York Times, which has an infographic detailing the bank’s post-crisis regulatory troubles.

No executives will face individual charges as part of the settlement, but media reports indicate that federal prosecutors are planning to bring civil suits against Countrywide Financial’s co-founder Angelo Mozilo and other former executives. Still, the lack of charges or prosecutions against individuals who were involved in distorting information to sell risky securities rubs many advocacy groups the wrong way.

“The statement of fact [resulting from the settlement] failed to identify the amount of profit the bank gained, or show how the penalty will restore losses to victims. Nor did it identify individuals responsible for the fraud. Short of this, the settlement will do little to help Americans believe that equal justice prevails at mega-banks,” Lisa Gilbert, director of the Public Citizen’s Congress watch division said in a statement.

For Bank of America, the settlement allows the organization to settle outstanding regulatory concerns and move ahead with its business strategy. “We believe this settlement, which resolves significant remaining mortgage-related exposures, is in the best interests of our shareholders, and allows us to continue to focus on the future,” Brian Moynihan, Bank of America’s CEO, said in a statement.

Recent research shows that banks are starting to focus more on business growth over regulatory initiatives as they emerge from the financial crisis. There seems to be a growing acceptance that regulatory expenses -- both in operating costs and fines -- will likely remain high for some time. Citi and J.P. Morgan Chase also recently reached major settlements regarding their own dealings in mortgage-backed securities, and other major banks and investment firms will likely follow. Those institutions will probably pay up, too, to put the past behind them. But if they haven’t reformed their business and compliance operations, they might find that the past often repeats itself.

Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio